FEU’s close to P4-B retained earnings

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Emeterio Sd. Perez

FAR Eastern University Inc. (FEU) paid its top five executives P59.475 million in the last two years. Including the pays and perks estimated at P31.592 million the group will receive in 2017, their total compensation will be P91.067 million in three years.

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“All other officers and trustees of a group,” FEU reported, were paid salaries of P35.325 million and bonuses of P20.496 million, for a total of P55.821 million in 2015-2016; and P38.932 million and P21.392 million for a total of P60.324 million in 2016-2017.

FEU uses trustees, instead of directors, in referring to the members of the board.

By the end of 2017, FEU estimates the salaries of “all others” at P44.884 million and their bonuses at P22.823 million for a total of P67.708 million in 2017-2018.

In an explanatory note on compensation, FEU reported that the “total remunerations” of the “Group’s” key personnel,” which it divided into short-term benefits of P150.018 million for a one-year period ending May 31, 2017; P21.512 million for two months as of May 31, 2016; and P147.029 million for one year ending March 31, 2016.

(Note. The report for 2016 covered two months because of the change in fiscal year, which ended on March 31 that year. “Group” refers to FEU and subsidiaries.)

During these three periods, FEU paid the group post-employment benefits of P21.581 million; P3.728 million; and P19.982 million.

In addition to their pays and perks, these top five executives are also among FEU’s stockholders, who, as of May 31, owned 1,080,303 common shares, or 6.556 percent, either directly or indirectly. Of the 13 individual stockholders, four held only a nominal or qualifying share each.

At a price of P1,000 per common FEU share as of Sept. 13, the group’s holdings had market value of more than P1.08 billion.

Retained earnings

A suggestion to FEU’s public stockholders: Don’t rely alone on retained earnings reported in the school’s financial filing. Read the footnotes that explain the accumulated net profits that are reported as retained earnings under stockholders’ equity.

For example, FEU, as of May 31, had retained earnings of P3,939,968,519 (or P3.940 billion). In the footnote, it reported its appropriations of P2,573,733,100 (P2.574 billion) for, among others, property and investment acquisition, P2.25 billion, and expansion of facilities, P187 million.

The school also reported what it defined in a financial filing as “reversal of appropriations” amounting to P168.27 million during the year ended March 31, 2016. It also said it set aside additional appropriation of P707.5 million for property and investment acquisition.

“During the same year, the University reversed appropriations for expansion of facilities amounting to P143 million, and the purchase of equipment and improvements amounting to P25.3 million, as the purpose for which such appropriations were made had been completed,” FEU said in a financial disclosure.

Since dividends are sourced from unrestricted retained earnings, the public stockholders and their co-owners who control FEU, were paid dividends of P12 per share, or P197.724 million on July 19, 2016, and P10 per share or P164.770 million on March 21, 2017.

Remember the 13 individual stockholders who are insiders? At these per-share dividends, their 1,080,303 common shares entitled them to P23.767 million, or 6.556 percent of P362.495 million dividends.

Of course, FEU’s top 20 stockholders received the bulk of the university’s retained earnings. As of May 31, their 11,937,477 common shares earned them dividends of P262.624 million.

Of the top 20 stockholders, PCD Nominee Corp. held 735,584 FEU common shares, or 4.46 percent, for beneficial stockholders.

Due Diligencer’s take

The Montinolas, backed by a good board, have succeeded and continue to succeed in managing FEU. Even Sysmart Corp., which belongs to SM group owned by businessman Henry Sy Sr. and his family, entrusted the Montinolas the task of making the university profitable.

Sysmart, according to FEU’s filing, owned 1,546,138 common shares as of May 31. Its holdings had market but paper value of more than P1.546 billion at P1,000, at which the stock closed on Sept. 13.

How could anyone among the public who are also FEU stockholders complain when their holdings earn regular dividends? The annual filings posted on the website of the Philippine Stock Exchange show FEU’s continued profitability if one were to base the school’s financial performance on its financials.

There are questions, though, about FEU and its financial performance. Why don’t the Montinolas, who control the board, approve the declaration of stock dividends to enable the university to make use of its retained earnings?

By transferring to operations its accumulated net profits over the years, FEU would be extending the benefits of profitability to both public and majority stockholders. After all, as Due Diligencer has long been voicing out in this space, it is the public stockholders who are responsible for making family-owned-and-controlled businesses to get their shares listed. Why limit the dividends to cash? Just asking.

esdperez@gmail.com

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